Tax time for lawmakers

Erin Neff

Friday, Jan. 31, 2003 | 5:13 a.m.

For the Chinese, 2003 is the year of the goat. For the Nevada Legislature, 2003 is a year of budget crisis in which the 63 lawmakers hope to avoid such a label.

Taxes will dominate the 72nd session of the Legislature -- set to begin Monday in Carson City -- in a way no single issue has in decades, and with a tenor that could border on rudeness.

"This session has the potential to be the most contentious session in modern Nevada history," state archivist Guy Rocha said.

The reason: Taxes.

Gov. Kenny Guinn issued the opening salvo with his State of the State address on Jan. 20, asking the Legislature to raise more than $1 billion in new taxes to offset a $706 million deficit and skyrocketing education enrollments and welfare rolls.

In 1931, when Nevada and the nation were in the Great Depression, lawmakers had to decide what kind of state and economy Nevada would have.

That Legislature legalized gambling after 21 years of having the practice off the books. It also liberalized divorce laws, reducing the waiting time from three months to six weeks. The moves overnight turned what was then the least populated state in the nation into a destination for tourists and people seeking quick divorces.

Rocha said that Legislature was at a crossroads and had to build consensus to fix the economy. But he does not think this 120-day session will have the same result.

"Here we are again at another threshold, but people are all over the board as to what the answers are," Rocha said. "Faced with a tremendous challenge in the 21st century -- just like those legislators were in 1931 -- we might not have consensus on anything, and the big question is, 'Will we come out of this session with a budget?' "

It is easier to predict a June 2 adjournment with no solutions than it is to see how lawmakers will be able to raise so much new tax revenue in an historically anti-tax state.

"I think everybody thinks there's going to be a special session," said Sen. Terry Care, D-Las Vegas, the former chairman of the state Democratic Party. "I just don't know how we're going to get it done."

The budget battle will dwarf other monster issues, including medical malpractice, construction defects and Nevada Power's problems.

"This session has to be about one thing -- the budget," Senate Majority Leader Bill Raggio, R-Reno, said. "It's about the budget and whether we raise taxes or cut spending and programs to make up the deficit. We have to do something."

Raggio worries about the $100 million Guinn has transferred out of the so-called rainy-day fund to balance the budget.

By law, the rainy-day fund is required to be equivalent to 5 percent of the state's budget. Guinn cut the fund to $36 million, and unless new taxes are approved, and some of them implemented by April 1, the state will not make the legal requirement.

"It really is a dire situation," Raggio said.

Assembly Speaker Richard Perkins, D-Henderson, said the session will be "all taxes, all the time."

But while Perkins said he thought consensus will emerge "to make Nevada the kind of place we all want to live," it is much simpler to envision a breakdown in the legislative process.

When U.S. Rep. Jim Gibbons, R-Nev., was an assemblyman, he authored successful legislation requiring a two-thirds majority on all tax increases.

Thus, the motto in the 21-member Nevada Senate has become "eight to kill" for senators such as Sandra Tiffany, R-Henderson, and Barbara Cegavske, R-Las Vegas, who dislike Guinn's tax plan.

"There are 63 of us, and we are all relevant," Cegavske said. "Each one of us should be allowed to discuss our ideas and not just go along with a giant tax proposal."

In the 42-member Assembly, 15 votes can sink any tax proposal and neither party has enough members in its caucus to push through a tax without needing votes from the other party. Democrats control that chamber, 23-19. Republicans control the Senate, 13-8.

While veterans such as Assemblyman Bob Beers, R-Las Vegas, vow to re-examine all state spending, others have made promises, the biggest of which is education.

Sen. Mike Schneider, D-Las Vegas, has a bill to fund Nevada schools at the national per-pupil average.

"I don't care how we get there, we have to do it," Schneider said.

Adding to the potential for contention is the tax proposal itself -- affecting everything from cigarettes and liquor to entertainment, businesses, gaming and personal property.

The business community, represented largely by the Las Vegas Chamber of Commerce, has been stridently opposed to the proposed quarter-of-1 percent tax on gross receipts over $450,000.

But gaming companies, including those that are chamber members, support the tax as a means of making other industries share the burden of Nevada's funding needs.

"Nevada is a two-legged stool that continues to wobble due to its dominance on sales and gaming taxes," said Bill Bible, Nevada Resort Association president. "The business community has got to come to the table and be a part of the solution."

It's not as simple as Republicans vs. Democrats anymore. Just as many Democrats as Republicans have expressed opposition to the gross-receipts tax and a 7.3 percent entertainment tax.

There are business vs. gaming, residents vs. the Legislature, and everyone, it seems, against Guinn.

"I just did what I think was the best thing for the state," Guinn said. "It is now up to the Legislature."

Tax proposals have been popping up for the past 12 months, first from the Governor's Task Force on Tax Policy, created by the Legislature, then the business community, then Guinn and now individual lawmakers.

"It's not as simple as just getting a majority anymore," Rocha said. "Now the minority becomes very, very powerful."

That means that there could be several competing plans.

Care and Sen. Mark Amodei, R-Carson City, have each submitted tax proposals aimed at tourists through room tax increases. Sen. Joe Neal, D-North Las Vegas, will try again to increase the gaming tax. And there will be others.

The 2003 session will also have the most freshman lawmakers in recent years as 16 newcomers are in the Assembly and four fresh faces (although all former assemblymen) are in the Senate. In 2001, there were just three freshmen.

"There's a huge learning curve in this session for all of them in the Assembly and to a lesser extent the ones in the Senate," Legislative Counsel Bureau Director Lorne Malkiewich said.

As freshmen try to learn the ropes, read the 1,200-page task force report and figure out life in Carson City, lobbyists will be happy to help them along.

Local governments, led by Las Vegas and Clark County, will fight any efforts to wrest money from their governments to pay the state's bills.

Big tobacco is well represented by some of the top lobbyists, including Harvey Whittemore, who will try to reduce the proposed 70-cents a pack increase on cigarette taxes.

Liquor distributors are expected to challenge the proposed 89 percent increase in the liquor tax. Business groups from the chamber to the Nevada Manufacturing Association, brothel owners and mining are also sure to enter the fray.

"We believe there is another side to the business tax debate," said Las Vegas Chamber of Commerce Chairwoman Lou Emmert, Sprint's chief executive. "We don't believe the gross-receipts tax is fair, and we will work hard to make lawmakers understand our position."

Other big issues

And then there are the other big issues.

Any one of the three -- medical malpractice, construction defects or Nevada Power -- could get reeled into the tax debate as hostages -- legislative lingo for negotiating points.

Medical malpractice came to public attention last summer when the crisis over the cost of doctors' malpractice insurance began spilling into the quality of patient care.

The University Medical Center Trauma Center closed when orthopedic surgeons said they could not continue to work there, given the risks. Trial attorneys argued the doctors were manipulating the public and putting patients at risk.

Both sides were summoned to Carson City for a special legislative session in which lawmakers enacted a $350,000 cap on jury awards for noneconomic damages in malpractice cases, with some exceptions.

That law took effect on Oct. 1, but doctors have not seen their malpractice insurance rates drop as a result. A splinter group of doctors initiated a petition that would strip the exceptions from the $350,000 cap.

The Legislature must consider the petition within the first 40 days of the session. If it doesn't act the petition will appear as as ballot initiative in 2004.

In addition to the petition, Assemblyman John Marvel, R-Battle Mountain, has drafted Assembly Bill 9 that would mirror California's Medical Injury Compensation Reform Act (MICRA).

AB9 would cap damages at $250,000, among other things. President Bush is calling for a nationwide $250,000 cap on damages.

Construction woes

Construction contractors have been feeling a liability insurance pinch similar to that facing doctors.

The Coalition for Fairness in Construction, representing the contractors, has produced a videotape for lawmakers that encourages reform, including a homeowner's right to have the contractor repair the defect without going to court.

Trial attorneys, who have been active lobbyists in Carson City for decades, will again be on watch and have formed their own coalition to lobby on the issue.

In 2001, after multiple hearings and discussions about reform, lawmakers did nothing. Clark County has designated three District Court judges to hear defect cases, with trials dragging on for weeks.

The construction industry, the second-largest in Nevada, views this as the session where something might change.

"I don't know if it'll be a solution or not, but I think they will pass some type of legislation simply because the situation's been there for so long now I think they want to get something done on it," said Gary Milliken, lobbyist for the Associated General Contractors of Las Vegas.

Scott Canepa of the Nevada Trial Lawyers Association said he thinks homebuilders are to blame for rising rates. He also said he does not think 2003 will be any different from past sessions.

"There's no reason for legislative change," he said.

The Nevada Power issue resulted in even more hearings during the 2001 session than did construction defects.

But lawmakers passed in 2001 an omnibus energy bill that, among other things, allowed the utility to seek a record $922 million rate increase in 2002 for past power purchases.

The Public Utilities Commission determined the company had not purchased the power prudently, and slashed the request to $485 million. The company sued the state and Nevada's consumer advocate countersued.

Meanwhile the company, racked by financial problems, proclaims it is on the road to recovery.

"We are not for sale," President Pat Shalmy said. "We are striving to rebuild our financial situation."

Another 2001 law, Senate Bill 425, prohibited the hostile takeover of a private utility. That provision sunsets in July and Nevada Power said it will not seek to extend it.

Last year the Southern Nevada Water Authority made a $3.2 billion bid for the company, which Nevada Power has not accepted. Clark County voters approved an advisory measure that supports the concept of Southern Nevada's power needs being served by a nonprofit public company.

Another 2001 law, Senate Bill 425, prohibited the hostile takeover of a private utility. That provision sunsets in July and Nevada Power said it will not seek to extend it.

"There are so many big, big issues this year," said Assembly Majority Leader Barbara Buckley, D-Las Vegas. "If we can get through the tax issue, I hope there's time for other meaningful legislation."

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